Asymmetric Effects Of Oil Prices Research Articles

An asymmetric approach to the oil prices-trade balance nexus: New evidence from bilateral trade between Korea and her 14 trading partners

Although the literature on the relationship between oil prices and the trade balance exists, relatively little attention has been given to the asymmetric effects of oil prices on the trade balance at a bilateral level. Thus, the primary thrust of this paper is to probe the asymmetric influences of oil price fluctuations on the bilateral trade balance between Korea and each of her 14 largest trading partners. To this end, we use the method of the nonlinear autoregressive distributed lag (NARDL). We discover that there is evidence that ups and downs of oil prices appear to asymmetrically impacts Korea’s trade with some trading partners, though not all, in the long- and short-run.

A dynamic quantile regression model for the relationship between oil price and stock markets in oil-importing and oil-exporting countries

This paper investigates the relationship between oil price and stock markets in the major oil-exporting (Russia, Norway, Canada) and oil-importing (USA, China, Japan) countries. We apply a time-varying asymmetric quantile regression (TV-AQR) model that conducts to provide a more comprehensive picture of the oil-stock market nexus by accounting for the time-varying propriety and the asymmetric effect of oil price on the stock returns under different market conditions. Using weekly data from January 2000 to October 2018, our results reveal that the reaction of the stock markets to crude oil price is time-varying and highly heterogeneous across conditional stock returns’ distribution. Moreover, the relationship between oil and stock markets is asymmetrical and the stock markets respond to negative oil price changes more intensively than to positive changes. We also find that the two considered markets are highly dependent during the financial crisis. These results carry crucial implications for investors as well as for policymakers regarding investment strategies and decision making.

Asymmetric effect of oil price on economic growth: Panel analysis of low-income oil-importing countries

This paper examines the impact of oil price on economic growth in seven low-income oil-importing sub-Saharan African (SSA) countries, namely Ethiopia, Gambia, Mali, Mozambique, Senegal, Tanzania and Uganda. Using panel-Auto Regressive Distributive Lag (panel-ARDL), we examined the impact of oil price on economic growth in the short and long run. The results show that oil price does not have a significant impact on economic growth in the short run for the group, but has a negative significant impact in the long run. However, the short-run country coefficients show that oil price has a significant but mixed effect on economic growth in all the seven countries. Using the Non-linear Autoregressive Distributed Lag (NARDL) model, we also examined the asymmetric effect of oil price on economic growth by decomposing oil price into negative and positive changes. The advantage of this model is that it examines both the long-run and short-run asymmetric effects of real oil price on growth. We found that a decrease in oil price has a positive and significant impact on growth, while oil price increase has a significant negative effect. Moreover, the error correction terms are negative and statistically significant for both the PMG and five of the countries in the short-run country coefficients. Therefore, it would be important for policymakers to explore and implement efficient energy policies and employ technological advancement policies to mitigate oil price risks, especially in the long run.

ASYMMETRIC OIL PRICE PASS-THROUGH TO DISAGGREGATE CONSUMER PRICES IN EMERGING MARKET: EVIDENCE FROM INDONESIA

This study investigates the inflationary asymmetric effects of oil prices at disaggregate consumer prices for Indonesia using Non-linear Autoregressive Distributed Lag model (NARDL). The bound tests for cointegration affirm the existence of a long-run relationship between oil prices and the aggregate consumer price (CPI) and its all sub-components. With the exception of the education price index, our results suggest the asymmetric effect of oil price on all sub-components of CPI. The degree of oil price pass-through is an incomplete degree but varied among sub-components of CPI and is attributed to energy-related goods and services. The highest degree of oil price pass-through is foodstuffs price index, followed by the transportation price index. We also find the positive degree of oil price pass-through to disaggregate consumer price is higher than the negative degree of oil price oil pass-through to disaggregate consumer price. Keywords: Oil price, Disaggregate consumer prices, NARDL, Indonesia,JEL Classifications: C22; E31DOI: https://doi.org/10.32479/ijeep.8287

Asymmetric effects of oil prices and exchange rates on China’s industrial prices

This paper explores the impacts of positive and negative changes in crude oil price and exchange rate variables on raw material procurement prices and product ex-factory prices of China’s industrial enterprises. We run the nonlinear autoregressive distributed lag (NARDL) model for the full sample from January 2000 to June 2019, and find the existence of the cointegrating relationships and the asymmetries of the long-run effects from positive and negative changes in oil price and exchange rate variables. Then, we run the OLS and quantile regressions for the two subsamples. Through the analysis of the estimates in different quantities in the latter model, we obtain rich and novel findings. The main findings include the inconsistency between the practice of oil price and exchange rate transmissions in China and the usual theoretical explanations, and the active roles of China’s oil product mechanism and exchange rate policy reforms in mitigating transmission distortions. In addition, we also find other asymmetries such as the asymmetric effects in different locations of dependent variable’s conditional distribution, and the different effects on raw material prices and product ex-factory prices from the same independent variables.

OPEC’s Risk Premia and Volatility in Oil Prices

This paper discusses a reason for volatility in oil prices. The Organization of Petroleum Exporting Countries’ (OPEC’s) revenues are positively correlated with macroeconomic activity. Being procyclic, volatility would not seem to benefit OPEC. However, using instruments to sort out endogeneity of OPEC’s revenues with respect to macroeconomic activity, volatility originating with oil prices is countercyclical in the U.S. and Europe, and OPEC, therefore, can command a risk premium. The risk premium may incentivize OPEC to destabilize prices, which lowers macroeconomic output because of the asymmetric effects of oil prices on the macroeconomy. While variation in OPEC’s revenues originating with the macroeconomy was positively correlated with the macroeconomy, OPEC’s revenues are extremely insensitive to macroeconomic activity. As a result, in any conventional model of risk, OPEC can also command a risk premium when volatility originates with the macroeconomy.

Modelling the asymmetric responses of price level to oil price changes in Qatar

ABSTRACTThis paper inspects the asymmetric effect of oil price on prices level in Qatar. To achieve that, we proceed by employing a nonlinear autoregressive distributed lag (ARDL) approach on data during the period 1990Q1–2014Q4. The estimation results show evidences of an incomplete and asymmetric influence of oil price on price level in the long term. Moreover, we find that price responses to negative changes in oil price is greater than its response to positive changes. Given Qatar’s economic features, a decrease in oil price could cause lower imports and production prices and consequently a substantial influence on domestic prices level. However, the lower effect of positive oil price changes on consumer prices can be explained by the subsidies system, the consumption patterns, and the exchange rate regime.

Does Oil Market Volatility Earn OPEC a Risk Premium?

The question is examined whether OPEC is in a position to collect a risk premium to effectively insure others against a macroeconomic downturn, which may, in turn, result from a rise in the price of crude oil. Contingent exchange is modeled such that parties whose consumption is elastic with respect to aggregate consumption hedge; they pay risk premia to smooth consumption. Parties whose consumption is inelastic or negatively related to aggregate consumption collect risk premia. OPEC’s revenues are estimated, insofar as they are explained by OPEC’s cartel pricing, to be strongly negatively related to aggregate consumption. Insofar as they are explained by exogenous macroeconomic changes, they are highly inelastic with respect to the aggregate. Either way, OPEC is in a strong position to collect a risk premium from volatility in the market for crude oil. This may incent it to destabilize the market, which would lower macroeconomic output because of the asymmetric effects of oil prices on the macroeconomy.

OPEC's kinked demand curve

Asymmetric effects of oil prices on the macroeconomy imply multiple equilibrium prices for OPEC. I estimate world demand for crude oil, non-OPEC supply, and the effects of changes in price on world GDP using quarterly data covering 1973 to 2010. If OPEC's marginal cost is $20/bbl in 2014:III, and its discount rate is zero, estimated equilibrium prices are $44–88/bbl. Multiple equilibria incent OPEC to tolerate unstable prices, which, because of the asymmetry, lower world GDP. Both policies that increase responsiveness to price and policies that lower net demand to OPEC narrow and lower the range of equilibrium prices, but the former are more effective at doing so. OPEC responds to changes in the discount rate in the opposite way from competitive producers, so policies that secure oil-related property rights in OPEC countries and other policies that lower OPEC's discount rate narrow and lower the range of equilibrium prices. Monetary policy is more effective at accelerating or slowing macroeconomic activity the larger is OPEC's market share.

Do oil prices really matter to US shale oil production?

ABSTRACTThe main contribution of this paper is to provide the answer to the question of whether changes in crude oil prices really matter to US shale oil production over the past decades. This study takes specific account of the asymmetric effects of oil prices, using an autoregressive distributed lag (ARDL) cointegration approach. It was found that oil price indeed has an asymmetric effect on shale production in the short run, i.e., US shale production is more responsive to an increase in oil price than to its decrease. However, it is found that the asymmetric short-run effects do not seem to be persistent in the long run.

Asymmetric Effect of Oil Price Shocks on Stock Markets

In this study, we investigate the relationship between stock market price and crude oil market price using Multivariate GARCH type model. We use daily frequency data of stock price indices SP stock market prices rise faster, than they fall, as a reaction to changes in oil prices, after controlling for volatility and price dynamics in a multivariate GARCH context. In other words, adjustment in mean equations is faster in the presence of positive shocks. In addition, we find that volatility shocks are quite persistent and they will have long memory. This study distinguishes itself from the previous studies within the oil and financial literature by not only examining the asymmetric effects of oil prices on stock returns but also applying multivariate GARCH approach in this literature, whilst others use univariate GARCH structure.

U.S. oil company stock returns and currency fluctuations

Purpose – The purpose of this is paper is to pay a closer look at the 2008-2009 financial crisis (and its aftermath) and analyzes stock returns of nine major US oil companies as well as the oil and gas sector under daily data from January 1992 to April 2012. Design/methodology/approach – The authors adopt the arbitrage pricing theory model to examine the relationship between stock returns and their influences including oil price return, yield spreads, and US dollar index return. The authors also provide a test for structural changes in each regression model of return series to capture for multiple breaks. To examine the asymmetric effect of oil price returns on stock returns, the authors separate oil price returns series into two series: positive changes in oil price and negative changes in oil price. Findings – The authors find stock returns of oil companies as well as the oil and gas sector are positively affected by oil prices and have stronger effects in the downward direction. Interestingly, The authors find the effects of oil price movements on stock returns increase over time. The authors examine the possibility that investors wishing to hedge against a weakening USD invest in US oil companies and find that more than half of these companies benefit from a weaker USD against the JPY, while all strongly benefit from a weaker USD against major currencies. Originality/value – The authors employ daily data for two-decade period including the last global financial crisis. Due to the long-term period covered in this study, sequential Bai-Perron tests are used to detect structural breaks of stock return series. In addition, the data-dependent procedures result in good specifications throughout with white-noise processes in almost all cases.

The Asymmetric Effect of Oil Price on Growth across US States

This paper investigates the dynamic relationship between oil prices and growth across the U.S. States using a panel data framework. We use both annual and quarterly data spanning the periods 1973 to 2013 and 1948Q1 to 2013Q4, respectively. Following Hatemi-J (2012), we allow for the presence of asymmetry in the cointegration and causality testing by decomposing oil prices into cumulative sums of positive and negative oil prices. The null hypothesis of no cointegration is rejected. The long-run coefficients are found to be statistically significant across all empirical models, with positive oil prices reducing output, while negative oil prices increasing output. We also find evidence of both short- and long-run bidirectional causality between aggregate oil prices and output. However, there is evidence of unidirectional causality both from positive and negative oil prices to output based on annual data. The quarterly data generated slightly different result, indicating both long- and short-run bidirectional causality between positive and negative oil prices and output.

Oil sensitivity and its asymmetric impact on the stock market

We develop a two-step methodology to facilitate an examination of the impact of oil shocks on stock returns. Oil price volatility is monitored in this study through the use of a regime-switching model, with the presence of jumps subsequently being taken into consideration to examine the asymmetric effects of oil prices on stock returns. Our analysis provides quite conclusive results based upon the use of a regime-switching model with consideration of jumps; that is, when there are significant fluctuations in oil prices (West Texas Intermediate; WTI), the resultant unexpected asymmetric price changes lead to negative impacts on S&P 500 returns. However, the same result does not hold in a regime of lower oil price fluctuations. We therefore suggest that the achievement of a well diversified portfolio should involve the consideration of oil price shocks, which, as a consequence, should also help to improve the accuracy of hedging against oil price risks.

Jump dynamics and volatility: Oil and the stock markets

Our study distinguishes itself from the prior studies within the oil and financial literature by not only examining the asymmetric effects of oil prices on stock returns, but also exploring the importance of structure changes in this dependency relationship. We retrieve daily data on S&P 500 and West Texas Intermediate (WTI) oil transactions covering the period from 1 January 1992 to 7 November 2006, and then transform the available data into daily returns. In contrast to the extant literature, in this study, consideration of expected, unexpected and negative unexpected oil price fluctuations is incorporated into the model of stock returns; we also focus on the ways in which oil price volatility, as opposed to general macroeconomic variables, can influence the stock market. We go on to implement the ARJI (Autoregressive Conditional Jump Intensity) model with structure changes, from which we conclude that high fluctuations in oil prices have asymmetric unexpected impacts on S&P 500 returns.